Worker bonuses slump 22 percent after GOP tax cuts

Data from the Bureau of Labor Statistics’ Employer Costs for Employee Compensation gives us a new chance to look at private sector workers’ nonproduction bonuses in 2018 and March 2019 to gauge the impact of the GOP’s Tax Cuts and Jobs Act of 2017. The bottom line is that bonuses in the most recent quarter, March 2019, remained very low at $0.72 per hour (in $2018), the same as in December 2018 and far below their $0.88 level in 2017 or the $0.90 level in 2018.

This is not what the tax cutters promised, or bragged about soon after the tax bill passed. They claimed that their bill would raise the wages of rank-and-file workers, with congressional Republicans and members of the Trump administration promising raises of many thousands of dollars within ten years. The Trump administration’s chair of the Council of Economic Advisers argued last April that we were already seeing the positive wage impact of the tax cuts:

Following the bill’s passage, a number of corporations made conveniently-timed announcements that their workers would be getting raises or bonuses (some of which were in the works well before the tax cuts passed). But as EPI analysis has shown there are many reasons to be skeptical of the claim that the TCJA, particularly its corporate tax cuts, would produce significant wage gains.

The new data for March 2019 allows us to examine nonproduction bonuses in every quarter of 2018 and the first quarter of 2019 to assess the trends in bonuses in absolute inflation-adjusted dollars and as a share of compensation relative to both December 2017 and 2017 as a whole.

An examination of overall wage and compensation growth does not provide much in the way of bragging rights for tax cutters, especially given the expectation of rising wages and compensation amidst low unemployment. Private sector compensation and W-2 wages both fell by 0.9 percent over the last year (March 2019 versus March 2018) and were lower in March 2019 than the average for 2017, the year before the tax bill passed. W-2 wages in March 2019, $27.44, were lower than in December 2017, $27.79, a drop of $0.35 or 1.2 percent.

In our last analysis we cautioned that the sharp drop in bonuses reported for December 2018—a $0.22 per hour decline in bonuses between December 2017 and December 2018—might be a statistical fluke. That bonuses remained at the same low level ($0.72/hour) in March 2019 indicates that there has been an actual decline in bonuses, twenty-two percent below their level in December 2017 before the GOP tax cuts passed. Nonproduction bonuses as a share of total compensation fell from 2.7 percent in December 2017 to 2.1 percent in December 2018 and remained at 2.1 percent in March 2019.

For bonuses, this is the lowest share of compensation since the summer of 2014, as indicated in the graph. As prior analyses have noted, we would expect bonuses to expand, not contract, in a low unemployment environment where businesses must expand efforts to recruit workers. As a June 2018 Wall Street Journal article noted:

“Bonuses started taking off four years ago. Businesses have been electing to give workers short-term payouts for retention and morale, rather than longer-term wage increases the economy had experienced in previous decades. Anecdotally, the trend of bonuses rather than permanent wage increases continues. A recent report by the Federal Reserve showed employers in the Atlanta Fed district were “increasing the proportion of employee compensation that is not permanent and can be withdrawn, if needed.”

No explanation comes to mind for this continued sharp decline in bonuses.

The figure below shows the share of total compensation represented by nonproduction bonuses for private sector workers since 2008.

The White House contention that corporate tax cut-inspired widespread provision of bonuses that led to greater paychecks through bonuses or wage increases for workers is not supported by the BLS Employer Costs for Employee Compensation data.

This is not surprising. Press releases—“a flurry of corporate announcements”—by a small group of administration-supporting firms do not create widespread bonuses or wage growth for workers. Neither do tax cuts targeted to the rich and corporations, at least within the first fifteen months.

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EPI is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.